PATIENCE WEARING THIN

The FED has all but run out of verbiage to use in its famous FED statements. It is the most widely read government agency press release and its probably the most difficult to interpret, even though its only 2 paragraphs long and contains a mere 143 words. The FED has couched its policy moves in a few of those words. Specifically, "considerable period", "patience", and now, "measured". My guess, along with everybody else's, is that the next statement contains the word "raise" prior to the words "federal funds rate". That would be the signal, that in fact, the FED would be raising rates. Until then, we all wait.

What is very interesting in the recent statements, is the fact that the FED still says that "the committee continues to believe that an accommodative stance of monetary policy...is providing important ongoing support to economic activity." That implies that the recovery and subsequent strength in the economic data is NOT self-sustaining. Clearly, the FED still believes that after three quarters of what normally would be considered healthy growth the economy still has not entered an economic cycle that is powering itself. And thus, still needs historic low interest rates to keep the economy supported. Interest rates that in fact, were put in place specifically to counter the effects of the terrorist attack on 9/11/01, the subsequent war on terror, and the ongoing recessionary environment which followed the bear market in stocks. Most of which is far behind us.

Why would the economy still need that "important ongoing support"? How can that be explained and why haven't they explained it more thoroughly? Slack resource use is the verbiage used, but why would that be? Hasn't the excess capacity been absorbed yet? Haven't companies started to rehire all the laid off workers? If not now, when?? What does that say about the health of the economy? What does that show about the FED's policy up until now? Has all the "easy money" been used to just to keep us from falling apart? And how does the FED unwind the situation without slamming all the borrowers on the head? They just told us to get adjustable rate mortgages. Revolving credit is "revolving" faster than ever. Auto loans at 0% are critical to the auto industry, and 35% of automobiles on the road are 'upside-down'.

Many well known and well respected pundits, strategists and economists have been calling for the FED to start raising rates to begin the unwind and to head off inflation. They are reading the same data as the FED, yet they have a different interpretation of the data. These people must see more strength than the FED. The FED has resisted and has in fact disregarded many suggestions, jawboning and signs that they should be moving rates higher to get ahead of the so called curve. Nonetheless, the FED did nothing. It seems they are either scared or confused, or maybe they know something that everybody else doesn't. They certainly are not showing leadership or insight, as many of their strongest supporters are saying that they don't understand what the FED is waiting for. Even Larry Kudlow called out Mr. Greenspan to get moving on rates.

Now we will patiently remain patient as the FED does its calculations and data collection. August is the next FOMC meeting, and they will have lots to digest between now and then. I can't wait to see the next statement, if only for the fact that there will be some different words in it.